Abstract

http://ssrn.com/abstract=1595926
 
 

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Making Sense of Non-Binding Retail-Price Recommendations


Stefan Buehler


University of St. Gallen - SEPS: Economics and Political Sciences

Dennis L. Gärtner


University of Bonn - Faculty of Law & Economics

April 2010

CESifo Working Paper Series No. 3024

Abstract:     
We model non-binding retail-price recommendations (RPRs) as a communication device facilitating coordination in vertical supply relations. Assuming both repeated vertical trade and asymmetric information about production costs, we show that RPRs may be part of a relational contract, communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus. We show that this contract is self-enforcing if the retailer’s profit is independent of production costs and punishment strategies are chosen appropriately. We also extend our analysis to settings where consumer demand is variable or depends directly on the manufacturer’s RPRs.

Number of Pages in PDF File: 42

Keywords: vertical relationships, relational contracts, asymmetric information, price recommendations

JEL Classification: D23, D43, L14, L15

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Date posted: April 26, 2010  

Suggested Citation

Buehler, Stefan and Gärtner, Dennis L., Making Sense of Non-Binding Retail-Price Recommendations (April 2010). CESifo Working Paper Series No. 3024. Available at SSRN: http://ssrn.com/abstract=1595926

Contact Information

Stefan Buehler (Contact Author)
University of Saint Gallen - SEPS: Economics and Political Sciences ( email )
FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)
Dennis L. Gärtner
University of Bonn - Faculty of Law & Economics ( email )
Postfach 2220
D-53012 Bonn
Germany
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